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Contents:

Prepared Remarks:

Welcome to the Globus Medical's Fourth Quarter 2018 Earnings Call. At this time, all lines will be on mute. And a Q&A session will be held after the prepared remarks.

I will now turn the call over to Brian Kearns, Vice President of Business Development and Investor Relations. Please go ahead.

Brian Kearns -- Vice President, Business Development and Investor Relations

Thank you Crystal, and thank you everyone for being with us today. Joining today's call from Globus Medical will be Dave Demski CEO; Dan Scavilla Executive Vice President, Chief Commercial Officer and CFO; Anthony Williams, President; and David Paul, Executive Chairman. This review is being made available via webcast accessible through the Investor Relations section of the Globus Medical website at www.globusmedical.com.

Before we begin let me remind you that some of the statements made during this review are or maybe considered forward-looking statements. Our Form 10-K for the 2018 fiscal year and our subsequent filings with the Securities and Exchange Commission, identify certain factors that could cause our actual results to differ materially from those projected in any forward-looking statements made today. Our SEC filings including the 10-K are available on our website. We do not undertake to update any forward-looking statements as a result of new information or future events or developments.

Our discussion today will also include certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We believe these non-GAAP financial measures provide additional information pertinent to our business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with the most directly comparable GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are available on the schedules accompanying the press release and on the Investor Relations section of the Globus Medical website.

With that, I'll now turn the call over to Dave Demski our CEO.

David M. Demski -- Chief Executive Officer

Thank you Brian and good afternoon everyone. I'm very pleased to announce record revenues of $196 million for the fourth quarter, an increase of 11.3% over Q4 '17 and our fifth consecutive quarter of double-digit organic growth. Non-GAAP EPS was also record $0.45 per share, an increase of 18% over last year. For the full year, revenue came in at $713 million an increase of 12% and non-GAAP EPS was $1.67 per share, up 28% over 2017.

Our U.S. Spine business continue to accelerate growing by 9.4% over the fourth quarter of last year. Our U.S. business grew by 5.9% for the full year well above the overall market and we finished the year with strong underlying momentum, as the second half of the year grew at 8. 5%. Implant pull through from ExcelsiusGPS placements and back-to-back record sales force recruiting years were the primary growth drivers. We remain intensely focused on both of these areas going into 2019, which when combined with a robust line up of anticipated product launches bodes well for continued growth.

Our international spine business grew by 11.7% in Q4 and 13.7% on a constant-currency basis. Our business in Japan continued its strong growth in Q4. The business in Spain turned around significantly during the quarter. Italy continued its outstanding performance and we saw strength in Brazil. For the full year, our international business grew by 9.1% as reported and 7.6% on a constant currency basis led by Japan, Italy, Australia, Germany and Brazil. We are optimistic going into 2019 that our international spine business is poised to grow at rates in excess of the U.S. spine business.

For the fourth quarter, revenue from our ExcelsiusGPS system was $14.3 million. This is an increase of 31% over the fourth quarter of last year, which is particularly significant considering the pent-up demand reflected in last year's number caused by the initial delay in our launch. We remain extremely bullish on the potential of computer-assisted surgery, navigation, robotics and imaging to transform the ways spine surgery is done. We are highly encouraged by the level of adoption across our installed base. This is a key area of focusing investment for us, as the value experienced by early adaptors is essential to driving the next wave of buyers.

We continue to win the battle in a vast majority of head-to-head technology evaluations. We are making great progress toward product enhancements and we remain flexible and responsive to our customer's capital constraints by offering tailored business solutions. The nascent nature of this market combined with our strong balance sheet enables us to compete effectively with competitors, who are much larger than we are.

We made further progress in our trauma business during the quarter with our focus continuing to be the production of inventory to support the national roll-out of all core systems. While the pace is not where we wanted to be, we have expanded our internal and external production capacity and have greatly increased our presence in many markets. We continue to invest heavily in terms of sets and sales force expenditures and remain fully committed to becoming a technology leader in this space.

2018 was an excellent year for Globus. Not only did we achieve record revenue and EPS, our organic sales growth was the highest it has been since we've been a public company and our profitability and cash flow continue to be the envy of the industry. The promise of our entering into the world robotic surgery has been validated by our strong performance and leadership position. As we enter 2019, we stand on the cusp of a very bright future driven by a passion for innovation across all of our businesses.

Thanks Dave, and good afternoon everyone. Globus delivered strong financial results in Q4 with continued above-market gains in the U.S. business, accelerated growth in international markets and record placements of ExcelsiusGPS systems. Full year revenue was $713 million growing 12.1% as reported with one more selling day in 2018.

GAAP net income was $156.5 million and non-GAAP net income was $169.4 million both driven by strong operational growth, the full year effect of the U.S. tax reform and one-time tax benefits. Fully diluted non-GAAP earnings per share were $1.67 with an adjusted EBITDA of 34.5% and $121.9 million of free cash flow. Q4 revenue was $195.9 million, growing at 11.3% as reported, or 11.6% in constant currency with one more selling day in the quarter versus prior year.

GAAP net income was $36.8 million and non-GAAP net income was $44.1 million, delivering $0.43 fully diluted non-GAAP earnings per share and adjusted EBITDA of 34.1% and $27.1 million of free cash flow.

Focusing on sales, U.S. revenue for the quarter was $163.8 million, 10.7% higher than Q4 '17. The growth was derived from strong performance in implant sales driven by competitive on-boarding, increased implant pull-through from accounts with our robot and continued placement of ExcelsiusGPS systems. International revenue for the quarter was $32.2 million growing 14.7% as reported, or 16. 8% in constant currency. Gains are achieved through continued market penetration in Japan, Spain, Italy and other key markets coupled with ExcelsiusGPS sales.

Turning to the rest of the P& L. Q4 gross profit was 76.5% compared to 76.8% in Q4 '17. The change is primarily due to the planned increase and appreciation for cases and instruments, as we expand our sales forces in spine, trauma, and robotics globally. Full year gross profit remains strong at 77.6% and full year 2019 gross profit is projected to be in the mid-70s.

Research and development expenses for the fourth quarter were $13.8 million, or 7% of sales compared to $11.4 million, or 6.5% in Q4 '17, resulting from increased investments in the INR platform.

SG&A expenses for the fourth quarter were $83.6 million, or 42.7% compared to $73 million, or 41.4% in Q4 '17, reflecting our planned reinvestment of the U.S. tax reform savings to drive future growth. Expanding the U.S. sales force in spine, building out the robotic and trauma commercial teams, growing the Japanese sales force and increasing surgeon education are the primary investment areas.

The GAAP income tax rate for Q4 was 22.8% compared to 51.8% in Q4 '17. The current period reflects the U.S. tax reform reduced federal rates, while Q4 2017 included a one-time $11 million tax reform charge.

Full year 2018 GAAP income tax rate was 17%, which included 440 basis points of one-time benefits related to stock option exercises and manufacturing credits that are not planned to repeat in 2019. We project an effective tax rate for 2019 of approximately 21%. GAAP fourth quarter net income was $36.8 million and non-GAAP net income was $44.1 million.

GAAP diluted earnings per share were $0.36 and non-GAAP diluted earnings per share were $0.43, growing 15.1%, including continued investments in emerging technologies that negatively impacted Q4 '18 EPS by $0.04. Full year non-GAAP earnings per share were $1.67, which include $0.08 of one-time tax benefits for stock option exercises and manufacturing credits. Adjusted EBITDA margin for Q4 2018 was 34.1% and full year EBITDA margin was 34.5%.

The company continues to deliver best-in-class margins and profitability, while investing for the future growth. In 2018, we drove meaningful investments in sales force expansion for spine and robotics globally, expanded the trauma sales force, increased INR development program investments, expanded manufacturing capabilities and created broader surgeon reach through education programs.

Full year 2019 EBITDA margin is projected to be in the mid-30s. We ended the quarter with $602.8 million of cash, cash equivalents and marketable securities. Net cash provided by operating activities in Q4 was $44.3 million and free cash flow was $27.1 million. The company remains debt free.

The company reaffirms guidance for full year 2019 sales of $770 million and non-GAAP diluted earnings per share of $1.72. Implied revenue growth of 2018 is 8%. Normalizing the 2018 non-GAAP diluted EPS to $1.59 by reflecting the $0.08 of one-time tax benefits for stock option exercises and manufacturing credits, resulted in implied operational growth in non-GAAP diluted EPS of 8.2% in line with revenue guidance.

We will now open the call for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from Larry Biegelsen from Wells Fargo. Your line is open.

Shagun Singh -- Wells Fargo Securities -- Analyst

Thank you very much for taking the question. This is Shagun in for Larry. I guess my first question is regarding recent clearance that you received in January for Accurate. Is this a second robot you to plan to launch alongside Excelsius? What is the strategy here?

David M. Demski -- Chief Executive Officer

Thanks Shagun. Yeah, we don't have any immediate plans to commercialize the Accurate (ph) robot, but we're evaluating all of our options with respect to the portfolio. The IP in the engineering team that we acquired from KB is a significant part of our development efforts going forward in terms of our platform and our leadership.

Shagun Singh -- Wells Fargo Securities -- Analyst

Okay. And then just as a second question. I was wondering EBITDA margins have come down two years in a row. And it is for to drive future top-line growth. But can you put a final point on how we should think about 2019 relative to 2018? You said mid-30s, but does it mean should we expect it to be up, down or flat versus 2018? Thank you very much.

Hey Shagun, it's Dan. So, a couple of things. We called out in the beginning of 2018 our intent to invest and use some of those funds from the U. S. tax reform, we've done that. So, we still have, what I consider a very high EBITDA versus the industry. And I think it's healthy, where it is. My thought is we carry into 2019, looking at that same range, possibly a little bit better is what I would expect. The real question there, if you think it would go down and get worse and we don't anticipate that.

Shagun Singh -- Wells Fargo Securities -- Analyst

Got it. Thank you.

Operator

Thank you. And our next question comes from Craig Bijou from Cantor Fitzgerald. Your line is open.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Hi guys. Thanks for taking the questions. I want to start with a robotic -- robotic one. And in addition to Accurate, you also got your SI joint product approved for use on Excelsius. So, given the magnitude of role, just wanted to kind of hear what you guys are saying in terms of additional indications or applications we can expect throughout the year? And maybe just kind of the timing of those? And can you just any expected incremental contributions that could be attributed to some of the new applications?

David M. Demski -- Chief Executive Officer

Sure Craig. I think as we've talked about in the past, we're working an interbody solution as well as the cranial application. This going to ride on ExcelsiusGPS. And we're looking at second half of the year at this point go on to put a finer point on it than that, but those are both going well. They are nearing the completion of the development cycle but we have to go through the verification validation, the whole FDA process before we can launch.

In terms of impact it's really hard to say. It's really going to add value to the product we're offering. So, we're hopeful that will help -- help us sell more systems. As the incremental aspect of those applications alone, I don't think that will be significant, but I think it definitely improves the product offering and will differentiate us even more versus competition.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Great. And then also just wanted to ask on the CFO search. I know it's going to be out there for a little while. You guys didn't really talk about anything in your prepared remarks, but just wanted to see where that's at?

Hey, Craig thanks for asking. The truth is probably me dragging my heals with some other things, as opposed to going into that. We've got a great deal of interest and we've really gone through several candidates, we are continuing to do that. It's just a matter of processing through and getting together with the Board. So, it's really thumbs up, I am pleased with the candidates we're seeing. It's just taking a little bit longer than I would have anticipated and that's more just balancing several things and create that situation versus anything else.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Okay, guys. Thanks for taking the questions.

Operator

Thank you. Our next question comes from Matt Miksic from Credit Suisse. Your line is open.

Matthew Miksic -- Credit Suisse -- Analyst

Hi, thanks for taking our questions. A couple of questions. Just maybe one on the tone of the business, I think there's been, I know you're not sort of the biggest fish in the pond. But just in terms of volumes and price and some of the things sort of market metrics that we talked about in the past, what your thought of Q4 and kind of what your expectations are maybe for stability in 2019? And then I had a couple of quick follow-ups on Excelsius, if I could.

David M. Demski -- Chief Executive Officer

Hey. Matt good to talk to you again. So, I would tell you, again if I look at market data, which I get mostly from you and your counterparts that seems about right for us. And so as we look in 2019, I would tell you them wind up with that projection that's what we built into our forecasting as well. Price pressure for us has really been a constant throughout the year, not even moving a whole lot mid-single digits, we say that all the time and that's really the truth.

So, again I would project that forward everything we do ongoing 2019 and into the future, I look at that rate of erosion. And as you know, one of the models for us is that rapid innovation of launch, which helps to offset that. So, I think we continue on that path. I think the market will see continued price pressure. And I think it will be in that range of 0% to 2%.

Matthew Miksic -- Credit Suisse -- Analyst

It's great. And on the robot and your plans there, I appreciate the outlook on some of the features and new applications. Could you I guess, some of the centers that we talked to, seem to as you probably know, since you're working with these folks, using this thing often from the posterior for pedicle screws in the sort of, I guess, the facedown position. And I wanted to get a sense as to how much this either interbody application or some of the things that you're working on are geared toward tackling the sort of lateral position?

The second question on this is just one of the data points coming out of the large competitor robots. They seem to be placing a lot of these things, lot of the contracts that they put in place this last quarter. Your competitor in the U.S. is doing more than half of them are sort of contracted for volume. And I just without putting a two-point a point on it, just wanted to get a sense of what the interest you're seeing there? I know what lead without necessarily, but how is that compare with your experience? Thanks.

David M. Demski -- Chief Executive Officer

Sure. Thanks Matt. In terms of the lateral position we have several surgeons doing it right now. Excelsius will -- you can put the screws in from the lateral position, save that flip and a lot of time in the procedure, do it safely and consistently. So, that's not a future development at all.

And then to your second question about the deals out there, yes, we do that, where it makes sense, where there is a business opportunity and it make sense for us with the customer. They've done that for a long time and it was actually one of the appeal to us, getting into the capital business. If you got a really appealing piece of capital, it can definitely help you in your implant business. So, did that answer your question?

Matthew Miksic -- Credit Suisse -- Analyst

It does. The question I was thinking, I know folks are putting in screws in the latter position, but the interbody does that, I'm assuming that will apply to a lateral -- lateral interbody as well?

David M. Demski -- Chief Executive Officer

The next application will help position the retractor, hold the retractor and then you can navigate the instruments in the interbody.

Yeah, thanks. Just curious about the comment you made about continuing to win a majority of head-to-head competitions with Excelsius. Does that, I mean, given that we're a few months into 2019 and I think that (inaudible) additions been out there now. I mean have you -- does that held up? I guess when you have been even competing with the newer system with the navigation capability?

David M. Demski -- Chief Executive Officer

Absolutely Mike. We just went to head-to-head in a couple of big centers in the west, I'm not going to say who they are, but a clear sums up for our technology. They piece together two things and it's better than what they had, but it's not equivalent to -- that what we're offering.

Michael Stephen Matson -- Needham & Company -- Analyst

Okay, thanks. And then you're commenting on the pull-through benefit, I mean, it's great to see the implant business pick up like it has, but you also had some rep addition. So, are you able to act kind of really measure the actual impact of the pull-through? And how does that compare to the numbers that you talked about, which were, I think, maybe adding like a million per robot over a three-year period, if I remember correctly?

Anthony L. Williams -- President

Yeah, I would tell you that we do have the ability to break them out. We don't disclose them for obvious reasons. We talked before about just the concept of having a pull-through. And if you remember saying just simply even having an additional procedure that may occur per week because of these things can have some meaningful impact.

I think obviously there are some places, where we see that. We see that in excess and we don't see it at all. So, it depends on the whole gamut. But what I would tell you, is the growth is really attributed to both the rep conversions as well as pull-through. I think they are almost contributing equally the way we look at things right now.

Michael Stephen Matson -- Needham & Company -- Analyst

Okay, thanks. And just finally on trauma, I mean, I guess can you maybe explain these production issues in a little more detail, because I guess, I just I'm confused as to why that's been such an issue there, when you're producing much higher volumes on the spine implant side? Is it just because these are newer products for you guys?

David M. Demski -- Chief Executive Officer

I think that's probably the best way to put it. There's thousands of SKUs. So, we're taking on a lot at the same time. And they are, while they are similar, they are different in several respects. And the team developing them is different. So, that's just post some challenges as we've gone from design to manufacturing as well as trying to take that on in addition to our growth in spine in the Alphatec conversion has put a big strain on our overall supply chain.

Michael Stephen Matson -- Needham & Company -- Analyst

Okay, thank you.

Operator

Thank you. And our next question comes from Ryan Zimmerman from BTIG. Your line is open.

Ryan Zimmerman -- BTIG -- Analyst

Hey, thanks for taking the question. So, I wanted to follow up with one robotic question and then I have a separate non-robotic question. Can you speak a little bit about to the trends around robotic unit sales, particularly with respect to the US, OUS split that saw this quarter and how we should be thinking about that going forward?

By my math it looks like there is a little bit more OUS potential sales this quarter than there was historically. And then I want to ask a follow-up on gross margins, which I'll hold off until you answer.

Hey Ryan, It's Dan. So, I would tell you that the US I think we can talk about reasonably comfortable, where you have what tends to be a larger Q4. And as you know maybe it depends on where you are because a little bit softer Q1 picks up with fiscal years ending in June. And then as we have already seen some of it a long Q3. I don't think we would plan anything differently right now. So, we look at it.

International is still too new and too underdeveloped to see any kind of meaningful trend. I don't know if I can look at that and say, we'd follow the U.S. or not. We'll have to get deeper into that and have that conversation later on. So for now, that one is more opportunistic as we close them. They tend to take a little bit longer for language and currency type things as well, so not quite as predictable that way.

Ryan Zimmerman -- BTIG -- Analyst

Okay. Got it. Helpful. And then gross margin trends, I know, you've spoke kind of broadly about it on an annual basis, but maybe you could helps us understand, as you do introduce more robot units, you have trauma coming on, you could help us kind of piece together kind of the cadence of how we should think about your gross margins going forward in 2019 and beyond? Thank you for taking my questions.

Okay. I think this year they've been high for a lot of reasons as you know. I was signaling throughout the year. I expected Q4 to start coming in line as we really set and increase depreciation. And that's happening the way we think. With the mix of our products including, when trauma comes enhanced robotics even continued growth of biologics in international, calling ourselves in mid-70s company is still, I think, within the range. I always expect that to be somewhere between 74% and 77%. And I would say everything we see a model knowing the prices and the profits that we have today that range still fits for the next few years.

Ryan Zimmerman -- BTIG -- Analyst

Thanks you guys.

Operator

Thank you. Our next question comes from Will Inglis from Piper Jaffray. Your line is open.

William G. Inglis -- Piper Jaffray & Co -- Analyst

Hi guys, thanks for taking the questions. I guess drilling into the competitive landscape on the robotic side, just curious about your comments earlier. It sounds like there is some flexibility in your pricing model just based on the needs of your customers. Is that Accurate exchanging the robot for volume discounts?

David M. Demski -- Chief Executive Officer

I wouldn't say we're exchanging them for volume discounts that it's probably not Accurate, but we put together a package deal if there capital constraints. So, we'll allow them to pay it over time.

William G. Inglis -- Piper Jaffray & Co -- Analyst

Great. That makes sense. And then in the back half of last year, there is a fair amount of reps rolling out they're non-competes. Is there a similar level of reps rolling out non-competes this year? And any updates on competitive rep hiring?

David M. Demski -- Chief Executive Officer

We had a very strong year in '18 and their typical rep has 12-month non-compete. So, we'll see the same cadence if you will into '19. And yeah, we are out of the gates very strong this year and there is a pretty good pipeline. So, I think our technology and some of the disruption that's happening at some of our other competitors is calling people to take an interest in Globus and they're liking what they see.

William G. Inglis -- Piper Jaffray & Co -- Analyst

Great. Thank you.

David M. Demski -- Chief Executive Officer

Sure.

Operator

Thank you. And our next question comes from Richard Newitter from SVB Leerink. Your line is open.

Richard Newitter -- SVB Leerink -- Analyst

Hi, thanks for taking the questions. Two. The first one maybe for you Dave. Piggy backing on the last one with respect to flexible placement there financing considerations for the robot. I guess what's your willingness to entertain different types of business models should you need to? And you maybe not discounting volumes, but is there any kind of arrangement, where you perhaps providing a rebate of sorts on the back-end over time if certain volume thresholds are hit?

David M. Demski -- Chief Executive Officer

Yeah, Rich, I mean, we're going to do a make sense for the business we always have. And you can trust us that we're going to continue to grow. We're going to be profitable. So, I'm not going to get into all the specifics of what we will or won't do in any particular situation. But we're going to be competitive and we have the resources to do so. We have great technology. And we have very strong balance sheet. So, we're, I think, we're in a great position to compete and I'm not concerned about it.

Richard Newitter -- SVB Leerink -- Analyst

Got it. And then maybe for you Dan. Dan, maybe on the components of the guidance, just thinking about the trauma launch a little bit slower than expected continuing into this year. Is the right way to think of the trauma contribution, I think the consensus is in the $5 million to $10 million range.

You'd kind of brushed that line of thinking in the past. Is that the right trauma placeholder? And while I'm asking about the components, thinking about maybe a U.S. core spine, actually emerging tech something in the mid single-digit range and the double-digit international sales. Is that the right kind of build up to get into your, to your full year revenue number?

Yes Rich, I think you're in the ballpark with. I think if you look at kind of mid full year has given us cadence of pull-through, that makes sense. My thought would be, if you pick that in that range and lower part for trauma is about right. And again given the roll-out and getting on contract, getting on shelf, getting usages and seeing an uptick, I would look for that to be more of a second half of the year than anything that's large in the first half just because you're going to have that constant pressure buildup that way. But I think your assumptions are in line.

Richard Newitter -- SVB Leerink -- Analyst

Okay, great. Thank you very much.

Operator

Thank you. And with no further questions, this concludes the end of the Globus Medical Fourth Quarter Earnings Call. Thank you for participating and have a good evening. You may now disconnect.

Duration: 30 minutes

Call participants:

Brian Kearns -- Vice President, Business Development and Investor Relations

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